Court: District Court, C.D. California; October 20, 2015; Federal District Court
The Court, presided over by Honorable Josephine L. Staton, denied Defendant Allergan, Inc.’s Motion to Dismiss in an antitrust case involving an alleged exclusive licensing agreement with Medytox, Inc. Plaintiffs Adel Tawfilis, DDS, and Hamid A. Towhidian, M.D., both direct purchasers of Botox from Allergan, filed the complaint on behalf of a putative class of U.S. direct purchasers of Botox for cosmetic use during a specified Class Period from September 25, 2013, until class certification. The relevant antitrust market is defined as injectable neurotoxins for cosmetic use within the United States, where Allergan’s Botox holds a dominant market share of at least 85%.
The complaint highlights significant barriers to entry into this market, such as stringent FDA regulations, particularly concerning the sourcing of human albumin, a critical component of neurotoxin products. As a result, foreign competitors face challenges in obtaining FDA approval. Plaintiffs argue that competitors Dysport and Xeomin do not provide sufficient price competition, allowing Allergan to exercise monopoly power to raise prices or limit output.
Medytox is a Korean company that produces an injectable neurotoxin, Meditoxin, distributed in around 40 countries, but it does not sell in the U.S. Plaintiffs allege Medytox poses a significant threat to Allergan's market dominance in the U.S. due to its substantial investments aimed at entering the U.S. and European markets. Medytox reformulated its product to create an albumin-free version, which is a notable advancement since it avoids using animal-derived materials, thus enhancing safety by reducing the risk of bacterial infection during treatment. In Korea, Medytox's Innotox competes with Botox, capturing approximately 40% of the market compared to Botox's 35%, attributed to a pricing strategy that undercuts Allergan by 30 to 50%. After receiving regulatory approval in Korea for Innotox in mid-2013, Medytox began plans for a new manufacturing plant to support international sales, including to the U.S. Medytox filed a U.S. patent application for Innotox in 2010, leading to patent issuance in 2013. Plaintiffs assert that Innotox could have gained U.S. approval within two years post-foreign approval, as the regulatory pathway for cosmetic use is less burdensome than for drugs treating diseases. The FDA requires a Biologics License Application for cosmetic neuromodulators, which involves fewer safety studies compared to those needed for therapeutic drugs.
Plaintiffs allege that the timeline for FDA approval of botulinum-based injectables, such as Botox and Innotox, is significantly shorter than that for traditional prescription drugs, which raises concerns for Allergan regarding market competition. With studies showing that Medytox's products are similarly effective yet offered at a lower price, Allergan was reportedly worried about maintaining its market dominance, where Botox held approximately 85% of the U.S. share. To counteract the potential impact of Medytox's entry into the U.S. market, Allergan allegedly devised a strategy to prevent competition.
As part of this strategy, Allergan and Medytox entered an agreement announced on September 25, 2013, and finalized in January 2014, granting Allergan worldwide rights to Medytox's new botulinum-based neuromodulator, with exceptions for Korea and co-exclusive rights in Japan. In return, Allergan agreed to pay over $300 million to Medytox, which represented a significant financial boost for a company with a market capitalization of approximately $857 million.
Plaintiffs argue that this agreement constitutes a horizontal arrangement between competitors that has anticompetitive effects, effectively ensuring that Medytox would not compete in the U.S. market for cosmetic injectables. They claim that this agreement reinforces Allergan's monopoly by eliminating a potential challenger and that Medytox's products could have offered price competition against Botox. Additionally, plaintiffs assert that direct purchasers of Botox have suffered from the delay of Innotox's entry into the U.S. market, compounded by the ongoing delays in establishing a manufacturing plant for Innotox.
Plaintiffs argue that after the agreement between Medytox and Allergan, Allergan lost its economic incentive to accelerate the commercialization of Medytox's product, which would compete with Allergan's Botox, potentially harming its sales. They claim that FDA approval for Innotox has been postponed due to delays in clinical trials initially planned for 2012 and 2013, now expected no earlier than 2015. Plaintiffs filed their Complaint against Allergan on February 24, 2015, which Allergan sought to dismiss on May 8, 2015. Before the court could rule, Plaintiffs submitted their First Amended Complaint (FAC), asserting five claims against Allergan: 1) unlawful market allocation; 2) agreement in restraint of trade; 3) unlawful maintenance of monopoly power; 4) violations of California’s Cartwright Act; and 5) violations of California’s Unfair Competition Law. Plaintiffs allege that the Allergan-Medytox agreement obstructed competition, allocated markets, maintained monopoly power, and resulted in overcharges for Botox purchases made by plaintiffs during the Class Period.
Additionally, the legal standard for a motion under Rule 12(b)(1) requires the plaintiff to prove the court's subject matter jurisdiction, establishing standing under Article III, which necessitates showing injury in fact, causation, and redressability. The injury must be concrete and actual or imminent. A jurisdictional challenge can be made based on the pleadings or extrinsic evidence. A facial attack claims that the pleadings do not sufficiently invoke federal jurisdiction, and dismissal is appropriate if the complaint fails to allege facts establishing jurisdiction. Meanwhile, a Rule 12(b)(6) motion examines the legal sufficiency of the claims within the complaint.
In evaluating a Rule 12(b)(6) motion, the Court accepts all material factual allegations in the complaint as true and interprets them in favor of the non-moving party. Rule 12(b)(6) is applied alongside Rule 8(a), which mandates a "short and plain statement" demonstrating entitlement to relief. Dismissal is inappropriate if a plaintiff has provided enough factual allegations to present a claim that is plausible on its face. A claim achieves facial plausibility when it pleads facts allowing a reasonable inference of the defendant's liability, surpassing mere possibility but not requiring a probability of unlawful conduct.
A complaint must provide (1) sufficient factual allegations to give fair notice and enable effective defense and (2) plausibly suggest entitlement to relief, justifying the costs of discovery. Although factual allegations are accepted as true for dismissal motions, legal conclusions presented as facts are not. The Supreme Court emphasizes caution in allowing antitrust cases to progress to discovery without establishing plausibility, given the significant costs involved.
Allergan seeks judicial notice of several documents outside the pleadings. Generally, courts cannot consider materials beyond the pleadings for a Rule 12(b)(6) motion, but may consider documents attached to the complaint or those that the complaint relies on, provided they are referenced, central to the claim, and undisputed in authenticity.
Courts may take judicial notice of public records under Federal Rule of Evidence 201, but not of facts that are reasonably disputed. Allergan requested judicial notice of several documents, including investment analyses and FDA publications, which were central to the Plaintiffs’ claims but not attached to their Complaint. The Court granted judicial notice of certain documents (Docs. 32-6, 32-7, 32-9, 32-11, 32-12, and the FDA’s Guidance for Industry Doc. 32-10) as they were mentioned in the Plaintiffs’ First Amended Complaint (FAC) and their authenticity was undisputed. However, the Court emphasized that it would focus on the allegations in the FAC regarding the Plaintiffs' standing and causation, rather than general FDA guidance. Allergan's request for judicial notice of another document (Doc. 32-8) was denied because it was not referenced in the FAC and did not qualify as a public record.
Regarding the merits of the Plaintiffs' federal antitrust claims, they allege they paid inflated prices for Botox due to Allergan's exclusive licensing agreement with Medytox. Allergan contends that the FAC should be dismissed for lack of Article III standing, inadequate antitrust standing, and insufficient causation for the Sherman Act claims. Article III standing requires proof of injury-in-fact, causation, and redressability, with injury-in-fact established by a causal connection to the alleged antitrust violation.
To establish antitrust standing, a plaintiff must first meet the Article III standing requirements, after which the court assesses whether the plaintiff satisfies a more stringent antitrust standing standard. Antitrust standing, which influences a plaintiff's recovery capability rather than the court's jurisdiction, involves evaluating several factors: (1) the nature of the alleged injury, specifically if it is the type the antitrust laws aim to prevent; (2) the directness of the injury; (3) the speculative nature of the harm; (4) the potential for duplicative recovery; and (5) the complexity of apportioning damages. A necessary, though not always sufficient, condition for establishing standing under Section 4 of the Clayton Act is demonstrating antitrust injury, which comprises four elements: unlawful conduct, injury to the plaintiff, causation linked to the unlawful conduct, and injury type intended to be prevented by antitrust laws. Additionally, the Ninth Circuit requires that the injured party participate in the same market as the alleged violators. Plaintiffs, typically consumers or competitors in the restrained market, must show that their loss results from an anticompetitive effect of the defendant's actions, as damages cannot be awarded for losses that do not harm competition. Although a plaintiff must prove that consumers faced higher prices due to the defendant's anticompetitive actions, a plaintiff meeting antitrust standing requirements also satisfies Article III standing criteria. The court, having found that the plaintiffs adequately alleged antitrust standing, declines to address Article III standing or Allergan's dismissal arguments under Rule 12(b)(1), focusing instead on Allergan's challenge regarding the first three antitrust standing factors.
Allergan argues that Plaintiffs have not sufficiently alleged antitrust injury, claiming that the injury stems from conduct that is either beneficial or neutral to competition. Allergan asserts that the exclusive licensing agreement between Medytox and Allergan is inherently pro-competitive, pointing to Plaintiffs' acknowledgment that Medytox needs U.S. providers to sell Innotox. However, the Plaintiffs contend that Allergan misinterprets their claims, as they assert that foreign manufacturers cannot gain FDA approval for products using non-U.S. sourced human albumin. Consequently, Medytox reformulated its product to eliminate the need for albumin, enabling it to enter the U.S. market independently, which contradicts Allergan's claims of necessary partnership.
Allergan also posits that exclusive vertical licenses are generally pro-competitive, yet Plaintiffs argue that the agreement is a horizontal one between competitors, asserting it directly limits competition by preventing Medytox from competing in the U.S. injectable neurotoxin market. While Allergan references judicial recognition of the pro-competitive nature of exclusive IP licensing, the Plaintiffs maintain that the specific agreement at issue undermines competition, illustrating that it could lead to higher consumer prices due to market allocation and monopoly maintenance. Additionally, even if some pro-competitive aspects are acknowledged, these cannot be resolved at the motion to dismiss stage, as Allergan raises factual questions inappropriate for this early stage in litigation.
Plaintiffs allege Allergan engaged in unlawful conduct through a horizontal agreement with Medytox, resulting in Plaintiffs suffering injuries as direct purchasers of Botox who paid supracompetitive prices due to Allergan's exclusive licensing agreement. This conduct is claimed to violate antitrust laws, specifically the Sherman Act, which is designed to promote price competition. Plaintiffs assert they have adequately demonstrated antitrust injury and their participation in the same market as Allergan. Allergan counters that Plaintiffs have not established a direct causal link between the licensing agreement and their suspicion of inflated Botox prices, arguing that Plaintiffs failed to provide evidence of Medytox's capability or preparation to market Innotox in the U.S., including necessary FDA approvals and manufacturing capabilities. Plaintiffs maintain that their detailed allegations sufficiently show Medytox's intent and preparedness to compete in the market. They argue that FDA approval is not necessary to support an antitrust claim based on an exclusionary agreement and that a competitor only needs to demonstrate intent and preparedness to enter the market. The Ninth Circuit's precedent allows for potential competitors to claim standing if they can show genuine intent and preparedness, with factors such as experience, affirmative actions, financial capability, and contract consummation being relevant in this determination.
Allergan asserts that Plaintiffs have not demonstrated Medytox's relevant experience with U.S. clinical trials, FDA drug approval, or establishing compliant manufacturing facilities. They argue that Plaintiffs fail to show any proactive steps by Medytox to introduce its Innotox product into the U.S. market, including building a cGMP-compliant plant, conducting clinical trials, or applying for FDA approval.
However, Plaintiffs counter that Medytox possesses extensive international experience, particularly selling competing products like Meditoxin in around 40 countries, including a significant 40% market share in Korea against Allergan's Botox. They highlight that Medytox received regulatory approval for Innotox in Korea in mid-2013 and had plans for a new manufacturing facility to support sales abroad, including the U.S. and Europe. Furthermore, Plaintiffs note that Medytox invested in clinical trials for Innotox in Australia and filed for three patents in the U.S. in 2010, which were issued in 2013.
Although the allegations mainly pertain to Medytox’s overseas actions, Plaintiffs argue that this is due to Allergan's early intervention to prevent Medytox from entering the U.S. market, which occurred before Medytox made significant investments in FDA approval and manufacturing. The focus on Medytox’s international sales and efforts is seen as a response to Allergan's alleged anticompetitive conduct via an exclusive licensing agreement, suggesting that Medytox's lack of U.S. market presence is a direct result of these actions.
Plaintiffs adequately allege that Medytox possesses the intent and preparedness to enter the U.S. market based on its established background in drug approval processes, clinical trials, and international pharmaceutical sales. The Court notes that Medytox has taken significant steps towards compliance with FDA regulations, including plans for an FDA-compliant manufacturing facility, conducting clinical trials, and overcoming entry barriers. Despite Allergan’s claims regarding Medytox's resources, the Court finds that plaintiffs have sufficiently demonstrated Medytox’s financial capability to expand into the U.S. market. Medytox has invested in clinical trials in Australia, received regulatory approval for Innotox in Korea, and successfully marketed it in approximately 40 countries with a market capitalization of around $857 million. Allergan's argument regarding the lack of contracts for U.S. entry is countered by the assertion that Allergan's anticompetitive actions occurred prior to Medytox securing U.S. contracts. Consequently, the Court concludes that the elements for assessing a competitor's intent and preparedness favor the plaintiffs, rejecting Allergan's reliance on a precedent case that is deemed distinguishable.
The plaintiff, Medytox, alleges that Allergan engaged in anticompetitive practices to block its entry into the U.S. market for injectable neurotoxins. Unlike the plaintiff in Space Exploration, which had not launched an EELV-class vehicle or been ready to compete, Medytox claims to have successfully sold neurotoxins in approximately 40 countries and could have received U.S. regulatory approval within two years of obtaining it abroad. The Class Period defined by Medytox is from September 25, 2013, until the court certifies any part of the case as a class action, which has not yet occurred. In denying Allergan's motion to dismiss for lack of standing, the court noted Medytox's established market presence and the alleged horizontal agreement by Allergan to impede its market entry. Allergan contends that Medytox has not adequately demonstrated causation, as the plaintiff failed to show that it could have taken necessary steps to sell its product in the U.S. Allergan argues that Medytox's potential market entry is speculative and relies on a questionable series of events, suggesting that the claims do not meet the legal standards for causation as required under antitrust law.
Illegality must be a material cause of injury, and a plaintiff is not required to identify all possible alternative sources of injury. The Court rejects Allergan's arguments regarding Plaintiffs' standing and causation, having found that Plaintiffs sufficiently alleged antitrust injury and that Medytox intended to enter the U.S. market. The Allergan-Medytox agreement is claimed to have direct anticompetitive effects, preventing Medytox from competing with Allergan's injectable neurotoxins in the U.S., thereby maintaining Allergan’s monopoly. Plaintiffs assert that without the agreement, Medytox could have challenged Allergan's market power and introduced price competition against Botox. The Court concludes that the allegations adequately link the Medytox-Allergan agreement to the claimed harm, denying Allergan's motion to dismiss based on insufficient causation.
Regarding state law claims, Allergan argues that these claims under the Cartwright Act and California Business Professions Code section 17200 are dependent on the federal antitrust claims. Plaintiffs concur that their state claims are derivative of the federal claims, with California's antitrust law analysis mirroring that of federal law. Since the Court has determined that Plaintiffs have sufficiently stated their federal antitrust claims, it also finds that Plaintiffs have adequately stated a claim under the Cartwright Act.
Plaintiffs' Unfair Competition Law (UCL) claim is deemed derivative of their antitrust claims, which have been sufficiently alleged; thus, the Court finds a violation of California Business and Professions Code section 17200. The Court denies Allergan's motion to dismiss the state law claims, and consequently, Allergan's entire motion is denied. When assessing a motion to dismiss, the Court accepts the factual allegations in the complaint as true. Medytox has various brand names for its product Meditoxin and allegedly obtained additional related U.S. patents. Allergan's requests for judicial notice of certain documents are denied due to the lack of relevance. Allergan concedes that the concerns regarding duplicative recovery and complexity in apportioning damages do not apply to Plaintiffs' claims. Plaintiffs assert that Allergan's response to Medytox's potential market entry would have led to reduced Botox prices, benefiting them and the class. However, while Plaintiffs argue the concept of limit pricing, they fail to provide authority suggesting that a defendant violates antitrust laws by not engaging in limit pricing. The Court finds no basis for this theory, as limit pricing is distinct from lawful price competition. Allergan's arguments regarding its intent and preparedness to compete are relevant, particularly in assessing whether Plaintiffs adequately alleged Medytox's intent to enter the U.S. market, which is critical for establishing antitrust standing.
Antitrust laws aim to protect consumers from the negative effects of inflated prices and anti-competitive agreements among market competitors, such as territorial allocations. These laws also extend to safeguarding consumers from the harm caused by the unlawful removal of competitive products from the market. Allergan references the cases Cyntegra, Inc. v. IDEXX Labs, Inc. and Ethypharm S.A. France v. Abbott Labs to support its argument against the plaintiffs’ antitrust standing, noting these cases were adjudicated at the summary judgment stage. The court, however, emphasizes that at the motion to dismiss stage, it must accept the allegations in the First Amended Complaint (FAC) as true, rendering the cited cases less relevant. Additionally, the court dismisses Allergan's argument that the plaintiffs have not sufficiently alleged injury or causation to warrant injunctive relief, maintaining that the FAC's request for such relief should not be dismissed on these grounds.
